Best Business Structures for U.S. Expats

Many U.S. expats are not employed by large companies. They often run their business from outside the United States. If you are an entrepreneur running a U.S. business from abroad, there are a number of considerations, including tax implications and tax savings opportunities, that you may want to examine. How you structure your business will have a large impact on tax filing requirements. Let’s look at some of the typical small business structures.

Sole Proprietor

Freelancers, consultants and other self-employed expats and digital nomads often operate without registering a business. They are classified as Sole Proprietors and file U.S. taxes as an individual. The U.S. taxes self-employed individuals the same, no matter whether you earn it abroad or in the U.S. Self-employment taxes are 15.3% and cover items such as Social Security and Medicare. The filing threshold for self-employment income when abroad is $400. That means you will likely need to file a tax return regardless of your income. As a self-employed expat, you may need to make quarterly tax payments. Fortunately, when living abroad, you can use the Foreign Earned Income Exclusion (FEIE) and/or the Foreign Tax Credit (FTC) to lower your U.S. tax bill.

If you are also a tax resident in another country, you may need to file and pay a second set of taxes.

Using an LLC

A U.S. LLC is a “disregarded entity” in the United States. This means that any income from the business flows through to the owner. The LLC’s owner must report the income on their individual income tax return. From a U.S. perspective it is the same as a Sole Proprietor or being self-employed.

You can elect to have your U.S. LLC taxed as an S-Corporation. This helps reduce self-employment tax.

However, be aware that many countries do not recognize U.S. LLCs as pass-through entities. They are often treated as corporations for local tax purposes. This may create local corporate tax, local accounting requirements or Value Added Tax/Goods and Services Tax obligations.

Setting up a Corporation

American expats can own both U.S. or foreign corporations. The tax implications vary widely. A U.S. corporation is taxed at 21%. Foreign corporations can be taxed as low as 0%. Taxes are based on the jurisdiction, nationality and ownership of other shareholders, and the type of business. These structures have complex filing requirements.

Benefits of a U.S. Entity

A U.S. LLC is easy to set up and manage. It has much fewer reporting requirements and less paperwork than other types of entities. Plus your LLC earnings flow through to your individual tax return. This means you can avoid the costly and time-consuming returns and reports associated with other entities. However, the biggest disadvantage of a U.S. LLC is that you still owe U.S. self-employment taxes. Above about $40,000 small business owners should consider switching the LLC to an S-Corp.

Advantages of an Offshore Company

Many expats use an offshore business structure for significant tax savings. Offshore companies are beneficial for many reasons including: Zero U.S. FICA/Medicare taxes because you’re paid by a foreign company; a reduced Global Intangible Low-Taxed Income (GILTI) tax rate of 10.5% if a U.S. C Corporation owns your foreign entity; or paying yourself an income-tax-free salary of $130,000 (for 2025) by claiming the FEIE.

There are also disadvantages to using a foreign entity, including extra reporting requirements and additional tax rules. Offshore entities are generally more costly to set up and maintain.

It’s important to not only have the correct business structure in place, but also to do the correct reporting. Talk to an experienced tax consultant in the jurisdiction you plan to live and work, to ensure that your business structure makes sense for your situation. Contact Caja Holdings and let us help you unravel the tax complexities behind expat living.